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A project has an initial cost of $500,000 and expected after-tax net cash inflows of...

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Finance

A project has an initial cost of $500,000 and expected after-tax net cash inflows of $150,000 per year for 5 years. The companys target capital structure is 50% debt, 20% preferred equity, and 30% common equity. Its after-tax cost of debt is 10%, cost of preferred stock is 17.5%, and cost of equity is 25%. Calculate the following six capital budgeting criteria and explain the decision that the company should make based on each criterion. Assume that the companys target payback period is 4 years.

d. Profitability Index

e. Payback Period

f. Discounted Payback Period

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